Top nation not all it seems

A GLOBAL recovery is not quite what you would call it, but despite the financial difficulties faced by countries the world over, 2012 was a year in which many markets began to claw back ground lost during the global financial crisis.

In European markets, Germany led the way with its DAX index growing by about 29 per cent to be sitting near five-year highs.

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Australia's S&P/ASX 200 Index is trading at a 17-month high, up about 14 per cent for the year but still well below pre-financial crisis levels.

But the award for the best-performing sharemarket for 2012 goes, surprisingly, to Venezuela. The Caracas Stock Exchange, or Bolsa de Valores de Caracas (IBVC), has seen an epic rise of more than 300 per cent, with most companies at least doubling their share price.

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Naturally, one should be suspicious of such inordinate gains, especially when the country in question is ruled by Hugo Chavez, an anti-capitalist crusader who has seized more than 1000 companies since he came to power in 1999.

Earlier in the year, many commentators credited the surge of the IBVC to the possibility of a change of government in Venezuela, stating opposition leader Henrique Capriles was a more market-friendly candidate who could alter the highly controlled regulation system surrounding investment.

But according to Dr Anthea Jones, assistant professor in international relations at the University of Canberra, who was in Venezuela between June and July last year, a regime change was never on the cards. She said: ''It was very clear that Chavez would win the election and would win 10-12 percentage points ahead of Capriles, but what I noted when I got back to Australia - a lot of the international media coverage didn't actually reflect that.''

The election result proved irrelevant to the sharemarket in Caracas. The IBVC dipped slightly after the October 7 election but has continued to push up since.

Ben Ramsey, an emerging markets analyst at JPMorgan, said the rise in Venezuela's sharemarket had little to do with elections or performances of the listed companies and more to do with strict capital controls in the South American nation.

''People who are stuck in bolivars [the Venezuelan currency] locally and can't get access to dollars, basically to protect the value of their assets, need to find other assets to invest in,'' Mr Ramsey said.

Miguel Octavio, head of research at BBO, an investment firm in Venezuela, said the high levels of inflation, along with the fixed exchange rate, were forcing investors to diversify their holdings.

Venezuela's fixed exchange rate of 4.3 bolivars per US dollar only adds to cash holders' headaches, with much of the country's currency trading in a black market where the exchange rate is closer to 16 bolivars to the dollar, according to Mr Octavio.

In November, the Central Bank of Venezuela reported inflation at 18 per cent, after reaching a peak of 27.6 per cent in January. According to Mr Octavio, banks offer only 10 to 12 per cent interest on deposits, culminating in a negative return for those holding cash.

But investment is not as big as one would be led to believe, with only a handful of companies actively traded on the IBVC and volumes low. On average, the market traded 259,000 stocks each day during 2012. BHP averaged volumes of 10.2 million each day on the ASX. ''There are days when not a single stock trades,'' Mr Octavio said.